Ruthless Managing of People & Profits

Welcome to the Magnetic Marketing Podcast. Today we get to listen to Dan Kennedy and Lee Miltier as we talk about something that may be overlooked and is handicapping your business's effectiveness. So when we enter into our businesses, we come pre-programmed and pre-coded to act a certain way towards our business, towards our profits, and towards our people, and it's handicapping our success. Today, Dan Kennedy and Lee Miltier are going to go in depth and talk about why this is handicapping you and how you need to be able to allow yourself to let go of certain preconceived ideas and notions in order to be able to focus on becoming an effective owner of a business and grow the assets that you have collected by focusing on what your top priority should be when dealing with your business, your profits, and your people.

I don't think there's anybody that has had a bigger impact in the field of direct response than Dan Kennedy. The legend of Dan Kennedy should be ignored at your own peril. They're not really lessons, they're kind of laws that you live by. Dan opened my eyes to what small business marketing looks like.

Dan teaches strategic direct response that is timeless.

His ripple effect touches people who don't even know his name.

The world as we know it was changed because Dan Kennedy became obsessed with marketing.

Welcome to the Magnetic Marketing Podcast with your host, Dan Kennedy.

Hello everybody, this is Lee Miltier, and welcome to the call. We're going to have a pleasure tonight to have Dan Kennedy live with us. Our topic tonight is called Ruthless Managing of People and Profits. Hello Dan, welcome to the call.

Hey, how are you?

I'm fantastic, and yourself?

I'm doing great.

Well, the subject we're going to talk about tonight is rarely discussed, but I think it's a very important subject to entrepreneurs because it's the importance of managing people. Dan, you know, with a topic like ruthless managing people and profits for our call today, you know, I know some of us have been mentally and emotionally cringing because we've been brought up and programmed to be nice, to be liked, to be accommodating to other people. You know, the old saying, the customer's always right kind of mentality. And I know all of us struggle with that whole concept of always trying to be available mindset. So I know you're going to give us some information that some people might think is harsh. So let's deal with some of these old mindsets first, these beliefs, and start with that question to you first.

Well, I mean, the be nice thing is fine as far as it goes, but if you extend it to every customer always being right or to the need to coddle every employee and worry about their feelings and their sensitivities, then you have your eye off the ball of what business is really all about, and business is about profit. And so, for example, Verizon just made news. I think it was Verizon, one of them, Verizon or Cingular, one of them, Sprint. They just made news and got a lot of criticism because they have sent out termination letters to tens of thousands of nuisance customers and terminated them simply because they're sucking up too much customer service time. And so their average customer, I think I read, is using under an hour a month of customer service time. Within the averages, the worst is like 3 hours of customer service. And these ones they've cut are in the 20-hour-plus range.

What do these people do?

I mean, I have no— well, that's, that's mind-boggling.

Oh, I'm—

my assumption would be, you know, this is one step away from the person calling 911 to find out where the closest KFC is. I mean, you know, I guess.

How do you cook chicken?

But my point is, is that they got a lot of media criticism for terminating these customers. Some group is already lobbying the FCC, you know, to investigate this. How dare they deprive these people of cell phone service? But they're absolutely right. Those customers clearly are not profitable. The only reason to have a customer is for profit. Ergo, they gotta go. And the same thing is true about employees. I mean, there's only two reasons to have them. One is that it's profitable to have them. The other is for pure personal convenience. So you might have a housekeeper or a cook or an errand runner or a dog walker or a personal assistant. Purely for your personal convenience, much the same as you own or lease an automobile, and that's fine. Or you have them because it's profitable to have them, meaning that all of their costs added together not only don't outweigh their contribution to revenue, but their contribution to revenue is some multiple of all their costs added together., and there's no other reason to have them. So if you're not very clear about that agenda and your reasons to have them are to have friends or to have a socialized workplace or to have people who applaud you, to your face at least, and tell you what a great job you're doing, like Mike Tyson's famous entourage of people who were paid just to walk around behind him and tell him, "You're the man, Mike. You're the man," or for any other reasons, then, you know, you're not running a business. You're running a social club or a support group or I don't know what you're doing, but you're not running a business.

Well, let's talk about the catalog of ways that business owners actually handicap themselves in their business because I I know you talk a lot about that in your new upcoming book, and it's fascinating.

The book really is that. It really is a catalog of every way people shoot themselves in the foot, you know, with this management thing. And to be fair, we may actually unwittingly encourage it in the sense that we talk so much about advertising, marketing, and promotion without clearly and constantly reminding of the link to sales management, overall personnel management, and profit management. And it's a lot more fun to play on the marketing side.. But all advertising and marketing is severely sabotaged by what's going on on the operation side by the people. So if at any point in time the customer, the client, the patient comes in contact with human beings, then the management failures wipe out a large portion of, if not all of, the value and the return on investment from the marketing. And so the 300-some-odd page book is really a catalog of the ways they handicap themselves, but you can sort of clump them into two categories, one of which is by not having what I call a program, as in get with the program. Meaning the way things are supposed to be done around here, and then secondly, not enforcing the program. And truth be told, if you sit down and talk to most business owners about their program, it's pretty loosey-goosey. It's pretty sloppy. I mean, there's a lot of people showing up and kind of being left to their own devices as to how things are done. And at the end of the day and at the end of the week, there's some judgment made that all the quote, quote, work has gotten done, so everything is okay. And you know, this is, this would be like running a football team with nobody assigned to a position. And not keeping score, but as long as everybody showed up and ran around on the field for an hour, you considered it okay. And that's a lot of what's going on. And so all this money is invested in, in some cases, in facilities. People will spend $3, $4, $5 million to build a restaurant or in equipment and in advertising and marketing. And typically there's no commensurate investment of money, time, and energy in now making sure that advertising and marketing is supported by what's actually happening within the four walls and with the people who are there.

Do you think, Dan, that a lot of these business owners just expect the employees to know what they're supposed to do?

[Speaker:DAVID] Yeah, well, yeah, I think that's part of it. I think there's an enormous amount of presumed and assumed knowledge. I think to be fair to the employees that there's a lot of it on the employer's side where that assumption and presumption is completely unjustified. What's common knowledge about to you about what you do or about your business, there's no justifiable reason to assume that it's common knowledge to other people. But then I think there's also laziness. I mean, it's not a lot of fun for most people to to lay out a very detailed and complex and complete program for each job and for each person, to teach it, to teach it and coach on it repeatedly and constantly, and to enforce it. And so a lot of it is just is, you know, not wanting to deal with it or not wanting to hire the one key person who will deal with it. And so some of it is, you're right, is assumption and presumption of knowledge and know-how. And secondly, I think is just avoidance and laziness of not wanting to deal with it. And, you know, if you're really not going to deal with it, then you shouldn't have them.. But if you are either by compulsion or necessity going to have employees, then you can't expect to give them some vague and general guidance and turn them loose. And there are a lot of offices where, for example, the people answering the phones, what they've been told to do is answer the phones. And it filters into almost every job. Often the view of it communicated to the person is very narrow. In manufacturing, the bunch that I took over, they were told to make that stuff and assemble it. And that's about as far as it went, not like, you're going to be graded on being here on time, being in a clean uniform, filling out your job sheets, percentage of the stuff that you make that is actually right, etc., etc., etc. My first and only job as an employee, to speak of was a field sales position. And the program was here's your company car, here's your 5-state territory, here's a road atlas, here's a computer printout of accounts, and here's a sample case and a catalog of products, and most importantly, here's how to fill out your 3 documents— order form, credit application for an account, and your expense report every week.

Have at it.

Have at it. You know, when you think about— I don't know, it probably to hire just to run ads, find somebody and get somebody hired for a territory sales position today's dollars is maybe, I don't know, $30,000, $40,000, $50,000. It had to cost at least half that in 1970, whatever that was. Then you got a car. Then you got expenses being racked up. But God forbid anybody should, you know, have a program. Here's how you're supposed to plan and organize your territory. Here's how you rank accounts. Here's how you present the product. Here's the order in which you present the product. Here's the scripted language we have for the product that we know works. Here's what your ratios of effectiveness should be, and that you're going to be great, on and on and on. And I think most jobs are this way. The people are literally kind of tossed in there. And the third thing they do, if you want sort of another related type of sabotage, is they let the ones they already got train and indoctrinate the new one, rather than do it themselves. Themselves. So even if they spend an hour or two laying out their program for Bob or Susan, as soon as they turn Bob or Susan over to the 3 they already got, the 3 they already got quickly throw out the program and teach the new person their program. And the difference between the 2 is Grand Canyon-like. I mean, if you ever actually go around and sit down and can configure a way to have an honest conversation with employees in different jobs and have them describe what they think their job is and what their priorities are and what's a good day and what's a bad day and what's supposed to happen here, and then go and have the business owner tell you what he thinks is going on. The differences are epic, not trivial.

Dan, some of our peak performers have staff people, some don't. For the people who don't have staff, this is actually a fantastic call because it's going to give you a real heads up on things you need to know, you know, before you hire someone and also prepare yourself for, you know, doing what you need to do before you get that person, you know, on board.

And also— Well, beyond that, largely the same principles apply to outsourced rather than employees. Right, absolutely. So if somebody doesn't have actual underfoot W-2 employees, they almost certainly have vendors, and they almost certainly have freelance providers of goods and services. Or virtual assistants. Yeah, and they not only— not only do you have to manage them,. But in many cases you have to manage their employees who are doing work for you. Absolutely. Because they're doing such a crappy job of managing them.

Right, absolutely. I have a lot of questions to ask, so I'm going to move you along here. How about giving us a worldview of what and how things in business should be done in your view?

Well, There are obviously nuanced differences by type of business and type of product and type of service and type of customer and all of that. But generally speaking, I go back to what I said earlier, they should be done to a defined mutually understood taught, coached, and enforced program. So there should be procedures for virtually everything. And so if a new person, if a new, if you got a retail store, if somebody wanders in off the street and asks a question, what's supposed to happen? First, second, third. If they ask a question and then don't buy anything, what's supposed to happen? If they ask a question and make a purchase, what's supposed to happen? And what's supposed to happen immediately after they leave and the day after they were there and 3 days after they were there? And you need a procedure like that for literally every function of the business. I often joke and show people— a lot of people wouldn't think he would be, but one of the most organized people with his core business in managing the people in it is Chet Rowland with his pest control company. And he's got these checklists for every job and every person that they got to fill out So the guy actually doing the pest control job has to fill out this detailed form of everything he did in the house and then the customer has to sign it. So like in my case, I have Orkin at the Ohio home and I pay them $39 a month to put a door hanger on my door. That seems to be what I'm getting for my $39. I'm not sure. The guy must come at 2 o'clock in the morning, sneak up, put the door hanger on the door, and run like hell. That seems to be their program. And do you have bugs?

No, so it's a great door hanger.

It's radioactive. I guess it works like the burglar alarm sign. The bugs see it and leave. Go someplace where there's no sign. I don't know. But I mean, in reality, of course, the bug guy is supposed to do 67 things when he's in the house. So he's supposed to check this, he's supposed to go under the kitchen cupboard, he's supposed to go here, go there. Well, if you're running a pest control company, you can't be there to see if he's doing that. So the next best thing you can do is put it all on a form that the customer sees and has to sign that all those boxes have been checked off. So now some customers are going to go, hey, wait a minute. It says here you were supposed to go up in the attic and you checked off that you were up in the attic, but I didn't hear anybody up in the attic. So one of Chet's forms for one of his office people, the first thing on the daily form is turn on the lights and it has to be checked off, and the last thing on the daily form is turn off the lights and it has to be checked off. And we joke that if it wasn't there, at least once a year on a cloudy day, he'd drive by and find people sitting in the dark. At least once a year he would drive by and find all the lights blazing at midnight.

Look, he's right.

He is.

Absolutely.

I did a call earlier today for Tom Hopkins for his sales coaching members. When you talk about sales scripts, you get this, "Oh, they don't work." I don't want to be scripted or I don't want my people to be scripted because it ruins spontaneity. And you'll hear some of that same stuff about any of these procedures. Oh, it's way too rigid and asking— well, look, anybody who's doing anything really important, we don't want spontaneity and we want procedures followed. I fly. With private pilots. I don't want spontaneity, right? I, I'm not interested in that guy, uh, jumping in the cockpit and, and not following a checklist even though he's been doing it for 40 years. And number one on the checklist is, you know, see if there's gas, right? Well, I, I want that done in that exact same order every single time. If you, God forbid, have to have a heart operation, you don't want spontaneity. And so the real question here for business owners is, is your employee doing something important? And if they're doing something important, then it ought to be done by procedure because there has to be a best practice. So you figure out what the best practice is and then the person does the best practice.. And again, very few businesses are this well-structured and organized. However, it is my observation that the ones that make the most money, for the most part, are.

Okay, let's talk about street smarts versus academic theory and philosophy.

Well, the No BS Management book is no different than the other No BS books in the sense that The world is just chock-full of college professors and CPAs and former college professors and ex-Fortune 500 middle management guys who are running around telling people how they ought to manage their businesses and the people in their businesses. Never having actually managed a business or managed any people in a business, at least profitably. And so I probably own, I don't know, 300, 400 management books spanning some 30 years. And when I went to do this one, I went out and bought all the new ones. And with rare exception, they're truly horrendous because they are all theory. And a lot of the theory sounds marvelous. I remember when I took over a company with 46 employees and some serious morale problems as well as financial problems. At the time One of the pet theories of the management gurus of the age was the open-door policy. And if you read Harvard Business Review and you read Fortune and you read the books of the moment, you found everybody talking about the open-door policy and how you let people come in when they need to come in, and then they feel more part of things. And there's a whole litany of reasons why this is good that actually sound great in theory. And not knowing any better, I called everybody together and made a big show out of taking the door off my office and having it nailed to the wall as a symbolic gesture, and encouraging everybody to come see me whenever they needed to see me. We're all on the same team, yada yada yada. Well, it's fine if you want to get anything done. You got 46 employees. It's more fun to come ask you questions than it is to do anything. So figure 5 minutes a day times 46, you do the math. Before long, the only way I'm getting anything done is getting there at 5 o'clock in the morning to get everything I need done before the inmates arrive. I mean, it sounds great in theory, but you're never going to hear it from anybody who's actually ever run a company profitably. They may have tried it, but you're not going to hear anybody teach it. But you'll see a lot of academic nimrods teach it because they've never had to live with it. So you got to be really, really careful with management material, the same as you would with advertising, marketing, and sales material. Is it experience-based? Or is it academic and social experiment theory? And the theoretical stuff often sounds a lot better than the reality, but it doesn't work.

Do you have a litmus test that you use when you spend money on any kind of business advice? Well, yeah.

I mean, look, the first thing ought to be this. Does the person have any real street experience? I mean, have they actually done what it is that they are about to opine on? And then there's an issue of recency. So if the last time they did it was 1948, while fundamentals never change, still the distance from their actual experience to now having reformulated and rewritten history and created new theories in their head, you know, is a problem. And then is their experience relevant? So no, they don't necessarily have to be in your niche. So if you own a restaurant, you don't necessarily need a restaurant expert.. But you can't have somebody who the only thing, for example, in management they've ever done is manage architects because that's way too far afield. And then, you know, which are a little more subjective, but the issues you're really trying to get to are does what they do actually work? So you're trying to get to success and again to profit. And in the management category, hardly anybody, by the way, except me talks about profit. So all of the ways that they are measuring that this idea or this strategy works or it doesn't, all of the measurement devices are separated from profit. There's— I won't name him because he's a very popular guy and it's a book doing very well and it's a book in a series. But his whole management book, all of the measurements have to do with increased employee satisfaction. None of them have to do with increased profit for owner. Well, it's that we want them to be satisfied if we can. That's nice that they're more satisfied, but that's not the purpose of business. The purpose of business is more profit. And ironically, the one big survey that was done on this that is reported in this very popular management guru's book, but he misses the point of the very survey he reports on. Evidence is that intense— when intense supervisory strategy systems are put in place and there's real sort of rigid adherence to a program enforced, employee satisfaction, as they have measured it, goes down and productivity goes up. Now, he used this as an argument against rigid enforcement of a program because the employee happiness went down. But it actually makes my point in that, you know, you may not have— you may not be able to have them kissing Snow White on the cheek when they leave the hut in the morning and whistling all their way to work. And have maximum productivity and profit. The two things often don't go together.

You brought up a great thought here. Let's talk about employees and the employee and the employer relationship. What do you think the real true nature of that is?

Well, here's the first place that people need to get real.

It is an inherently adversarial relationship.

I think that's going to shock a few people. Well, sure. And see, it puts a different slant on all of the happy teamwork stuff that is out there. But if you stop to think about it, it can't be anything but an inherently adversarial relationship. John the employee's agenda can never, ever, ever, ever be your agenda.. It can't be. You own the business. He doesn't. He has a totally separate life and life perspective, associates around him, peers are different, influences are different. So as a business owner, your life is about your business, and your business is your life. As an employee, your life is outside of work hours. Work is an interruption and disruption to life, fundamentally an inconvenience. If you think not, round up all your employees and tell them as a social experiment you're willing to pay them the same money they're getting now. No pay cuts, no cuts in benefits, no nothing, and you're going to try and experiment for 5 years and let them stay home if they want to. Or come and work if they want to. They can do whichever they want. They just have to decide and sign up on a sheet at the back of the room and see how many of them go sign up to keep coming to work. Now there will be some, you know, there's the lottery winner who keeps coming to their job, right? Right. Because they're emotionally invested in the job, they have an incredibly ingrained work ethic, or the job is their place of socialization. But for the most part, most of them are going to take that deal, send me the check on the 1st or 15th, and I'll stay home and watch soap operas. And you can't blame them. So their life is not about their work, and it is not certainly about your business, and it damn sure isn't about optimizing your profits. Their life is about using their job and its paycheck as a vehicle for their life, which may be raising their kids, maybe going off every weekend to hunt and kill something, it may be playing golf, but it's not work. And so they come to your workplace and to their work from a totally different position than you do. Then add to that the wealth and power differential that you can't take away. So if you work for me, no matter how well I pay you— and, and so, and I've always overpaid and I believe in that, and that's a whole separate topic of conversation. But no, if I paid you double the going rate, for example, to come and work as my secretary or as a writer or as a— you name the job occupation— you are still going to be so distant from where I am financially, and it's not going to be invisible. Now, I don't personally go out of my way to make it dramatically visible, but a lot of business owners, it's very visible. The dentist has— he gets a new car every year. His dental assistant gets a new car every 5 years. He's got a Jaguar, a Bentley, and a Cadillac Escalade. She has a Ford Taurus. He takes 4 vacations with his whole family, including a cruise. She packs up the kids and goes and spends a weekend at the mother-in-law's. I mean, it's pretty visible. And a lot of our people, of course, it's really visible. They're got, you know, they got— Ted Thomas just told me Ron LaGrange just got delivery of his newest plane, you know, a Citation jet. Um, this is third plane, I think. So, wow. Well, see, his employees haven't got a jet, and they're never going to get a jet working for him, uh, even if he overpays them. So there's an enormous wealth differential, and then there's an enormous power differential. I can fire you, you can't fire me. Well, that's pretty simple and obvious, isn't it? And so power and wealth differentials breed resentment. It's impossible for them not to, no matter how you try and make it invisible, no matter how nice you are, no matter— it's still there. It is, in a sense, the stinky, smelly, unwashed elephant in the room. And also, it doesn't make any difference how hard the owner works No, I tried that one. I tried by demonstration making them feel better by killing myself. I tried that. Yes.

And you're absolutely right. It makes no difference. No, it doesn't. You've probably already answered this to some degree, but you and I talk all the time about how leadership speakers and authors are always trying to teach everybody how that they should get the employees to think that they have ownership of the company.

And you say it's total BS. Yeah, I mean, and that keeps coming back around. It was popular in the '70s, and then it was popular in the '90s, and there are people running around teaching ownership mentality. Well, the only way to have ownership mentality is be an owner, and then it's about a 50-50 proposition. I mean, look, we got business owners that don't have ownership mentality, let alone their employees. So— The blind leading the blind. Look, you're not going to give them ownership mentality in a seminar. You're not going to get it done with pins and banners and posters. Ownership mentality requires ownership, so it's bullshit. I mean, they have an employee mentality because they're an employee. To expect them to have any other mentality is setting yourself up for disaster. Now what you have to do is with a realistic understanding of their mentality and their view of what their job and their work is all about, you've got to create an environment that optimizes the value you derive from them. And when there's an occasional exceptional person, hopefully you have some kind of advancement track for them. And you can treat them differently than the rank and file who are doing the bulk of the grunt work. But you take the 5 gals at the front desk in a dental office, or you take the service technician in an auto repair shop, or now start naming jobs, and the idea that you're going to give them ownership mentality and they're going to think like an owner. You might ask Jerry Jones about his experiment sometime with— see, there's a fancy word for this. It's called intrapreneurship. And so Jerry read a book and decided to try this in his company. And at a Platinum meeting, Everybody jumped all over him, and I spent an enormous amount of energy trying to talk him out of this. And I got a fax from him about 8 months later, just came in on my fax machine unannounced, that just in 46-point type said, "Jerry Jones is a big fat ass." And, you know, he learned that it sounds great in a book, it doesn't work in reality. A job is a job, a business is a business.

You can't make one into the other. I know one of your favorite books is Think and Grow Rich, and there are 17 principles.

And which one is your favorite for tonight's topic, ruthless managing of people and profits? Well, it's my favorite period, only because it's the one nobody else likes. So 16 of the 17, everybody kind of likes talking about them. The one everybody sort of avoids is accurate thinking. And so it doesn't just apply here, but clearly it does apply here. I mean, to be successful at managing a business and the people in it for maximum profit, you have to start with an accurate understanding of what you got and what it will do and what it won't do. What it will do when you aren't looking, and you have to go from there. So these delusions about— and by the way, the thing that is already running through people's heads that have employees is the management version of, but my business is different, which is, but my people are different. My people would never steal from me. My people would never put all the phones on hold when I wasn't there for an hour and a half so they could have lunch together instead of have lunch in pairs the way I said they should. My people would never tell a customer that my prices are too high. My Harriet would never do that. Harriet's been with me for 37 years, etc., etc., etc. And see, the "my people are different" is just as dumb, maybe even dumber, than the "my business is different" argument. And so, you know, Napoleon Hill didn't intend those 17 principles to be a cafeteria, uh, any more than, you know, God sent Moses down and said, "Pick 4 of the 10 you like." Um, uh, he, he— which, by the way, is pretty much what everybody does. Pretty much. Um, Hill intended that to be integrated, not choice. And so one is no more important than the other. So the accurate thinking part of this is as important as is the burning desire part of this.

And, you know, accurate thinking is difficult.

Tell us why you think business owners and entrepreneurs have to stop being approval seekers. Well, that's, you know, that's the big enchilada in a lot of things. You know, one of the reasons that especially sales-oriented business owners or sales professionals will never use effective access and time management techniques and will not train customers and clients in the way that they interact with them and fire the customers and clients who won't and spend their time developing the customers and clients they will is because they can't stand the expressed disapproval of the ones who won't get it. And so their Willy Loman complex, their desperate desire to be liked by all gets in their way of doing what is effective in selling and in being a business owner.. And the same thing now gets in their way of managing. And so, see, again, this is about having a very clear agenda and a very set of priorities. And so if the priority is maximum profit, then that governs all decisions. Including those involving people and procedures and policies. And it puts in the backseat all other considerations. But if you've got competing with that a fear and a loathing of being disliked and a desperate desire to be liked by all, then you cannot effectively implement the first priority because they will very often be in conflict. Not always and not with all people, but they will very often be in conflict. So if you go back to the client side, for example, the way that I do business and am not accessible and yada yada, pretty much everybody on the call is familiar with that. There are people who don't like that, and there are people who take a personal dislike to me because of that. A few of them sometimes are clients or prospective clients who— the prospective clients don't become clients, the clients become ex-clients. Others are peers, professional regulators. And so some people take a personal dislike because of that. And if that was important to me, if that was affecting my decision-making, then there are times when it would be in direct conflict with the priority of managing myself, my business, my vendors, my employee, singular. My— and everything else for maximum profit and in my case for maximum personal convenience. So I think it gets in a lot of people's way. And again, it's sort of linked to a real misunderstanding of what business is supposed to be all about. And if you watch television, That doesn't help because most TV shows depict business as a social activity with friends. Like that show The Office? Yeah, well, yeah. Well, that show is about social activity with dysfunctional friends. Right. But so one way or the other,— it really depicts running a business and working in a business as being mostly about the social activity. And if something actually gets done, it's very rarely shown, and it's sort of an interruption to what's going on. And a lot of people think that's what's supposed to be going on in the real business place. And a lot of owners think that's what's supposed to be going on. So they think they're supposed to be— there's a difference between being friendly and being friends. They think they're supposed to be in a social environment all day with a group of friends and somehow work happens to get done. And that's in direct conflict with the priority of managing for maximum profit. Now understand I come from a very clear bias on this. Business, that you ought to be managing for maximum profit or you ought not to be running a business. And if I happen to be a stockholder in a company, if I detect that the top levels are managing for reasons other than optimum profit and optimizing shareholder value, I take my money elsewhere. And so if that's not going to be your priorities, If your priorities are other things, then maybe you should have a church, maybe you should have a club, maybe you should be coaching Little League, maybe you should have a job. But what you shouldn't have is the investment and risk in and the responsibility of running a business because a business is by definition a thing to create maximum possible profit. Okay, let's talk about the difference of a good boss and an effective boss. Well, effective is one who creates maximum profit, and good is subjective. So really, the answer to the question is figuring out how to make it objective, not subjective. So now we're into specific measurements in a business and creating specific measurements for employee and employer alike that would allow us to answer this question about Thomas. So is Thomas an effective boss? Well, how are we— what are the objective standards we're going to use to judge effectiveness. One is certainly profit. Corollaries may be employee retention versus turnover, although that's dangerous because there should always be turnover. If you take the Jack Welch approach, there should be at least 10% every year no matter what. I happen to think in many instances it should be substantially higher. So if we're not careful, we judge him an effective boss because he has the lowest turnover and the highest retention in his department in the entire company. Well, is he effective or has he just lowered the standards? Is he accepting of pretty much anybody and any behavior? So great care has to be taken in figuring out what these objective standards ought to be to measure effectiveness. Normally when somebody is labeled as a good boss, what's really meant is a well-liked boss. And that will not necessarily mean the most effective boss. Very few, to use a football analogy again, Most players you interview who have been very successful playing for Bill Parcells would— do not describe it as a particularly pleasant experience. Quite the contrary. But they would all describe him as an incredibly effective coach. And so, but these words are definitely not synonyms. The good implies all sorts of subjective judgments, and effectiveness implies objective judgments that have to have standards of measurement.

All right, it's hard to believe we've been on this call almost an hour, but I'm going to speed things up a little bit. You say that an employee is a rented asset.

Let's just talk about that briefly. Well, it's part of accurate thinking. I mean, that's what they are. If you rent a truck to deliver stuff for your business and you've leased a truck, you've leased a piece of equipment for a very particular purpose, and you have some pretty clear ideas about what makes that truck a good truck or a bad truck. Like, does it start every day or does it not start every day? What's its gas mileage? You know, is it reliable? Is it safe? Is it weaving all over the road and running into people? Does it haul a lot of stuff? Does it break down a lot, etc.? So a human employee is no different than a mechanical employee. You're renting it. You don't own it, obviously. We rent them. And as a matter of fact, we don't rent them like a truck because we don't get them 24/7.

We rent them for really very limited time periods.

And there's no guarantee. Well, yeah, exactly. And so we have to think about it in terms of a rented piece of equipment. So we ought to be renting it for a specific purpose. We ought to have ways of judging whether or not we have a good truck or a lemon. And if we have a lemon, of course, we ought to do something about it. We ought to recognize what we're renting, what its real capabilities are, what we're paying for it, what its total cost is, not just the car payment, but the insurance and the gas and the oil and the upkeep and the property tax on it, etc., etc.

And so we ought to look at it very much in that way. When I was reading your galleries for your new book coming out, one of the things that really struck me, Dan, was what you talked about what employees really cost. So I'm just going to name a few and if you talk about those briefly.

The cost of them making mistakes, time consumption, absenteeism, and replacement. Well, yes, see a lot of people when they look at their wage costs, they look at the wage. Right. Right? And so I pay Mary $38,000 a year, so Mary costs me $38,000 a year. Well, she costs you some number substantially more than that. And if you're going to manage for profit, again, you've got to have an accurate appraisal of what it really costs you to have her before you can ever figure out what the profit is in having her. And so when you have employees, you named some of them. One, there's time cost. So some of your time now is going to be consumed in hiring, training, coaching, rewarding, recognizing, retraining, explaining, supervising. Enforcing, and ultimately firing. If you delegate all that, then some of your time is going to be consumed managing whoever the hell you delegate it to. So if you have a human resources director and that person reports to you, there's a time cost now of that that you can amortize over all the employees underneath the human resources director. But there's going to be some time consumption, and if you're going to do it right, If you're really going to try and have a program, there's going to be some real-time consumption. There's going to be mistakes cost because they make mistakes. And there's going to be some reasonable and unavoidable level of mistakes. And so there's a cost there to do-overs. And hardly anybody measures it ever. They don't even think about it. I started measuring it like instantaneously with manufacturing and printing because like if you're not paying attention and you've got an in-house printing department as we had or a commercial print shop, the do-over cost can be astronomical. And it can be very dramatically from one pressman to the next. To one piece of equipment to the next, to whether the pressman develops a cocaine problem or not, et cetera, et cetera. So you can have two people putting in the same number of hours and turning out the same amount of work, except one of them is also burning through 25,000 pieces of paper a week of do-overs. And there's a do-over cost in lost customers that's— you know, a whole nother issue. And then there's absence. So depending upon the size of your company and all that, you may have mandatory absences that you have to permit— family leave, paid vacation days, et cetera. You may have some that you choose to permit, and you may have some that are forced upon you. Well, if they're important, if they're an important employee,— and they're absent 22 days this year, that created a cost. You had to do one of two things. You had to have other employees cover for them, thereby taking their time, attention, and energy away from what they're supposed to be doing. You had to cover for them. You had to hire temps, or you had to slow down fulfillment thereby incurring the cost of unhappy and dissatisfied customers, some of whom go away. And there's a cost to replace them when they quit, fall in love and move away, or have to be fired. Big companies, by the way, know these numbers. They have enough data. I don't know that they all manage effectively by them, but they do know them. Small businesses rarely take time to even think about it, figure it out, or even guess at it.

But how can you measure profit if you don't know cost? You and I talk about this all the time, but you always say that everyone you work with eventually will go lame.

So quickly share your thoughts on that. First of all, the number of business partnerships that— of significance that have gone the distance. You know, Bill and Bob got in business together right out of high school and they retired still in business together. They're legendary. And they're legendary because they're so rare. Same with key employees. I'm reading a book right now. It's an old book, but it was written by a guy Trump fired, uh, who— or the guy who quit, depending on whose book you read. Um, and, um, Trump paid this guy a lot of money, but, you know, the book is a vicious hatchet job, some of which is probably true and some of which isn't. But the number of people who have businesses 20 and 30 years who have the same key people, uh, it's extremely rare, so rare that betting on it is just beyond stupid. Again, my people are different, because here I know, but it's just a very bad bet. And so we have a saying at the track that they all go lame, and they do. All racehorses go lame, and eventually they all have career-ending lameness, and they gotta go. Some just get slow, results the same. And so all employees, all vendors, all key people, they all go lame. And if you happen to have one or two exceptions in your career, you should celebrate them, but you shouldn't manage as if they are going to occur. You should manage, in fact, as if they are all going to go lame.

And that mandates a number of things about how you manage a business and the people in it. I'm going to ask you this question, then I'm going to try to go get the operator.

Why is 1 the worst number in your business? Well— I know the answer to this. One reason is, you know, is they all go lame. And if it goes lame and it's your only horse, or it's your only one that can do that particular function, you're in serious trouble. You will be tempted to endure and accept declining levels of behavior, compliance, respect because you only have this one person in this one important role We had an attorney in my coaching group for 3 years who had a person he desperately needed to fire. Everybody knew he needed to fire her. Everybody told him he had to fire her. I actually went to his office, met her, watched her, listened to her, and it took him 3 years to get rid of her because he kept telling us she was the only one who knew where everything was, and when he went to court, he had to have her with him. And she was at his right-hand side every time he went and actually conducted a trial. And so because he only had one of her, he literally— the power shifts. You, the business owner, now don't have the power. The one person that you can't scream at, yell at, hurt their sensibilities, change their job, change their compensation, fire them. Uh, you live in fear of them being in a bad mood, uh, or deciding to leave you. Uh, they now have all the power. You're really working for them. This is true. You'll never be able to have compliance to a program if you only have one person working the program. Uh, forget it, they're going to work their program. And there's nothing you're going to do about it. So one, now that's specific to people, so you know, you really need two of everything.

Think, think Noah's Ark. Failing that, you at least got to cross-train. Absolutely. It's been a great call, Dan.

Really appreciate it.

Thanks a lot, folks. Have a nice evening. Good night, everybody. Thank you for listening to the Magnetic Marketing Podcast with Dan Kennedy. If you love hearing in on these lost Dan Kennedy talks and speeches and calls, then please let someone else know about this podcast. That's how you can help it to grow, and the more it grows, the more free Dan Kennedy we can bring to you. Also, Dan would love to give you the most incredible free gift ever designed to help you make maximum money in minimum time. Now, this free gift comes with almost $20,000 and pure money-making information for free just for saying maybe. You can get this gift from Dan right now at NoBSLetter.com. Not only do you get the $20,000 gift, you also get a subscription to 2 marketing newsletters that will be hand-delivered by the mailman to your mailbox each and every month, one from Dan Kennedy and one from me, Russell Brunson.

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